Watch for falling prices
A retail price war set off the day after Thanksgiving shifted the television landscape during the holiday season, putting high-definition TVs within reach of a lot more consumers and spurring wide-scale adoption earlier than most analysts expected.
It’s now estimated that one-third of U.S. households, roughly 35 million, have HDTVs, according to research firm the Envisioneering Group. That’s up from the roughly 26 million that had them before the holidays began.
The quick uptake of discounted digital TVs — many of which have been sold at cost — has hurt the bottom lines of retailers.
For consumers and peddlers of next-gen game consoles and movie-players at CES who have built their technologies around hi-def adoption, it’s been a boon.
“In a sentence, (hi-def) panels are being sold very close to cost,” says Envisioneering Group analyst Richard Doherty. “The discounting this season has been in every consumer’s favor even though it is hurting Best Buy and Circuit City and every other retailer’s bottom line.”
The average price of an HDTV set fell to $1,043 during the holidays, and is expected to slip to $800 this year, according to the Consumer Electronics Assn. Low-cost leader Wal-Mart slashed prices on some flat-panel TVs to under $500.
Those prices proved too good for consumers to pass up.
CEA predicted the industry would sell 19.7 million digital TVs in 2006, but the org and analysts like Doherty believe those numbers are too pessimistic given what happened in the fourth quarter, when retailers held to deep discounting on TVs to draw consumers into stores.
“A good chunk of it has been the Black Friday madness that started where panels sold under cost,” Doherty says. “Those price points have stuck around longer than anyone had imagined.”
The fiercely competitive pricing came at a cost. Best Buy and Circuit City, the nation’s two largest electronics retailers, both missed analyst expectations in their third-quarter earnings, reported in mid-December. Circuit City posted a sharp loss for the three months ending in November, which the retailer blamed on low HDTV pricing. Even so, the retailer said it had no plans to back off as it tried to gain market share.
The cut-rate pricing is better news for makers of hi-def add-ons. “It’s all very good for both (hi-def disc platforms) HD DVD and Blu-ray and the two (game) consoles that work with HDTV,” Doherty says. Both the PlayStation 3 and Xbox 360 support high- definition graphics.
Doherty notes that when both hi-def DVD formats debuted last summer, HDTVs were in one out of five homes. While an HDTV purchase doesn’t automatically translate to an HD-DVD or Blu-ray player purchase, gadget makers hope that once consumers get used to watching a high-definition picture, they’ll search for more upgraded content.
“There’s still a heightened sense of emergency for people who own HDTVs frustrated by the content available to them,” says Frank Roshinski, VP video merchandising G.M. for Tweeter Electronics.
So far, manufacturers and retailers have been able to keep up with demand on TVs. But the brisk sales might have caught some off guard. Because of equipment shortages, for example, some DirecTV subscribers have been told they have to wait over a month to have their satellite TV service upgraded to HD.
And Doherty says there may be some TV shortages in January when sales pick up around the Super Bowl. Until the new models arrive in stores in April, it could be difficult to find a digital set, he says.